Skip to content

CS Professional · Internal and Forensic Audit · Internal Audit of Specific Functions

At Narmada Auto Components Ltd, an internal auditor analysing the stores function notices that purchase orders for a particular item are repeatedly raised just below the Rs 2,00,000 limit that needs the purchase committee's approval, all with the same vendor, and the vendor's address matches an employee's address. Which fraud indicator and response is MOST appropriate?

The pattern shows split purchasing to avoid approval limits and a possible related-party or fictitious vendor. The auditor should extend testing to similar orders and the vendor master and escalate under the fraud policy. Treating it as a discount practice, obsolescence or forex matter would ignore clear red flags.

  1. ASplit purchasing and possible related-party vendor; extend testing to related orders and vendor master, and escalate per the fraud policyCorrect
  2. BNormal bulk discount practice; no action needed
  3. CInventory obsolescence; recommend write-off
  4. DCurrency exchange risk; recommend hedging

Explanation

Orders kept just under an approval limit indicate order splitting to avoid scrutiny, and the vendor sharing an employee's address suggests a conflict of interest or shell vendor. The auditor should widen testing to related orders and the vendor master and escalate under the fraud policy. Treating it as a normal discount, obsolescence or forex issue ignores the red flags.

Did you get it right without looking?

One question tells you little. A timed set on Internal Audit of Specific Functions shows your real accuracy, how long you take and where you lose marks.

Practise Internal Audit of Specific FunctionsFree diagnostic mock

More Internal Audit of Specific Functions questions